SHORTSALES VS FORECLOSURES

During my 30 plus years in the Real Estate profession, I had the opportunity of working in many areas of Real Estate, and learned to enjoy the new challenges that a new Real Estate transaction that I had not tackled before, would bring. So I learned and successfully closed Escrows in apartment complexes, NNN properties, orchards, business opportunities and of course, many homes, condominiums and town homes. With any new experience, I would jump right in and learned the ins and outs on all of them, but I have to confess that there was something that I never really learned and found very difficult to approach. That something was buying foreclosed properties at the steps of a court house, without having seen the properties inside and with the very often, wrong information that foreclosure companies or even trustees that were handling the foreclosure proceedings, were giving to inquiring people like me.
I decided that the business was to risky and complicated to tackle and there were many unanswered questions, and since I did not want to end with a big problem in my hands, I decided that I would never buy a property at the steps of a court house. I thought that the lack of information on the foreclosures bought at these steps was something that I did not have to understand since I was not going to do it; but now, something else is puzzling me.



This new thing is the existing relation between short sales and foreclosures. Because of the huge subprime mortgage problems that are occurring nowadays and that I feel will continue for a year or two, I have encountered some people in trouble that have asked me to help them out with their problems. These unfortunate people have informed me that they can't cover the mortgage payment because their mortgage adjusted to higher rates and they could not afford the payment so they had defaulted in their loans. A lot of these borrowers had good credit and they have asked me if there is a way that they can preserve their good credit by doing a short sale or a deed in lieu of foreclosure, instead of waiting to be foreclosed. Since I did not know the answer I decided to go to some shortsales/ foreclosures seminars with different speakers. After attending a couple of seminars I was not happy with their answers and approaches. They would go from absurd to outrageous. I decided to speak with companies that have done this for a living for a long time, but their answers did not satisfy me either. I concluded that a short sale or a deed in lieu of foreclosure is a voluntary action on the part of a troubled mortgagee that is willing to go through full disclosure of finances and personal lives in order to be accepted for a short sale or a deed in lieu of foreclosure. As for protecting their credit or having to pay federal taxes on the forgiven debt I could not find a definite answer. On their credit ratings, I concluded a short sale could be as bad as a foreclosure. As for the federal taxes they have to pay on the lesser amounts that the Banks are willing to take, there is a bill pending for signature to eliminate these taxes but as far as I know, the bill has not been signed yet.



Personally, I see a big difference between a short sale and a deed in lieu of foreclosure compared to a full foreclosure. I feel a short sale is compromise between borrower and lender to try to resolve a problem by agreeing to go along with all the lender's screening process that is needed for a short sale approval. A foreclosure is more of a hostile act on the part of the borrower.

My question is why Banks seem to treat equally a willing mortgagee that provides them with everything they ask for, and another kind of mortgagee that freezes and does not communicate or is not concerned at all if they get foreclosed?

Lenders and credit agencies should communicate with each other and go easier with willing people that go through short sales and be clear with these troubled consumers when they ask to what degree their credit would be affected with a short sale.

So far, when short sales candidates ask me the question regarding their credit, my answer is
"I don't know for sure".


Isaac Bensussen
www.besthomesinlajolla.com